Monday, May 23, 2011

Foreclosure Overhang: The Distressed Property Glut

The Lehmann Letter (SM)

Take a look at this morning's New York Times article by Eric Dash entitled, "As Lenders Hold Homes in Foreclosure, Sales Are Hurt:"

It begins by saying:

“The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.”

And then goes on to observe:

“Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.”

The article reports that banks have not been able to deal with the surge in distressed properties arising from the foreclosure crisis. More homes have piled up in banks' inventory than they have been ready, willing and able to sell. That supply overhang delays a home-price recovery.

It also discourages new-home construction by providing potential buyers with a surfeit of foreclosed properties that competes with newly built homes. Unfortunately the absence of new construction dampens economic expansion.

© 2011 Michael B. Lehmann

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